Canadian consumers have been put through the wringer in recent years. Mortgage borrowers, in particular, have had a bumpy ride. With pandemic restrictions, soaring inflation, and skyrocketing rates, the Canadian housing market has been hard to predict. With 2024 ushering in some much-needed relief, some predict an upswing in the housing market. This includes the Bank of Canada kicking off a long-overdue rate-cutting cycle, inflation normalizing, and improvements in post-pandemic supply chains. However, other experts believe that borrowers can’t exhale just yet. Let’s examine some predictions for the Canadian housing market in 2025.
What to expect in 2025
According to Re/Max’s 2025 Canada’s housing market outlook report, predictions are that Toronto prices will remain essentially flat. With an increase of just 0.1% and sales set to jump by 12.5%, these gains are due primarily to move-up buyers. These are buyers looking to buy bigger homes rather than first-time buyers. It remains unaffordable, mainly for those wanting to enter the Canadian housing market. Therefore, the market will increase in activity, but the excess supply won’t be swallowed up by excessive demand. Analysts with Re/Max cite the disappearance of the first-time home buyer not being there to push the Canadian housing market forward. Typically, first-time buyers make up 30 to 40% of buyers in Toronto, but now it’s sitting at 10%, and unlikely to change soon.
Home affordability is at an all-time low in Canada, with high home prices (still down only about 16% from the 45% peak of March 2022), higher interest rates, and climbing prices all around.
This view contradicts Royal LePage’s forecast, which sees a booming Toronto market. Their forecast asserts that falling interest rates, immigration continuing, and relatively-high incomes, will place upward pressure on sales and prices in the Canadian housing market.
Mortgages in 2025
While economic uncertainty may pose challenges for central banks in 2025, Canadian mortgage shoppers will enjoy some of the most accommodative borrowing conditions seen in a long time. With rates set to lower further and lenders looking to scoop up market share, it’s wise to explore your options. Especially if you are looking for a new rate or are renewing your existing term.
Variable & Fixed Mortgage Rates
Many analysts are predicting that 2025 will undoubtedly be a comeback year for variable rates. The Bank of Canada (BoC) slashed its benchmark borrowing rate by a cumulative 175 basis points since June. This is from its high of 5% to 3.25% today! As a result, the best five-year variable rates in Canada have eased from around 5.7 to 4.35%. The central bank will likely make several more cuts in 2025. Most economist forecasts call for an end range of 2.5-2.75%. This may result in a five-year variable rate around 3.6% by mid next year.
Fixed mortgage rates, on the other hand, appear to be reaching their floor. Doubts are rising over whether the US Federal Reserve will indeed cut its own rate. With the looming threat of American tariffs being brought in by a second Trump term, the Reserve will most likely keep fixed rates firmly in their current range of around 4%.
Borrowers Will Lock In For the Shorter Term
Five-year fixed mortgage rate terms are usually the most popular among mortgage shoppers. However, expectations are that rates will trend lower in the coming years. As a result, no one will want to commit to a higher rate when lower options may be around the corner. This will lead to a boom in demand for shorter-term fixed-rate options, such as two- and three-year mortgage rates. Shorter term options offer borrowers some shelter from existing housing market volatility, while allowing borrowers to make a change years sooner.
The latest CMHC data shows that, as of July 2024, fixed terms between three and five years accounted for 56% of all mortgages. This is in comparison to 22% in October 2022.
Big Banks Battles on Renewal Rate Pricing
If you are renewing your mortgage in 2025, it looks like the new year will be very competitive for renewal rate pricing. The CMHC reports that 1.2 million fixed-rate borrowers will be ending their terms this year, accounting for $300 billion in loans. That’s a lot of business that banks will be keen to retain – or snap up, from borrowers looking to switch lenders for a better deal. Thinking of switching lenders when renewing your mortgage? The good news is you’ll no longer have to complete a stress test when doing so – even if you’re an uninsured borrower.
The removal of the stress test for mortgage borrowers switching to a new lender at the end of their term is now in effect. This is according to The Office of the Superintendent of Financial Institutions (OSFI) as of September. The change applies to borrowers making a “straight switch”, meaning the original mortgage size and amortization period doesn’t change. Prior to this, borrowers without insurance (those who’ve put more than 20% down on their home purchase) still underwent the stress test if they wanted to switch banks for a new term. Insured borrowers (those with smaller down payments and who have taken out mandatory mortgage default insurance) are exempt from the stress test requirement since January 2024.
The Real Estate Market is Set to Ramp Up
Home-buying demand began picking up in the latter months of 2024, as the combination of rate cuts and new borrowing policy effects improved affordability. This was largely due to lower mortgage rates taking hold, which forecasts sales to rise 6.6% in 2025. Lower borrowing costs ease the stress test barrier for those buying a new home. This tacks 2% onto the mortgage contract rate they get from their bank.
New mortgage reforms:
In September, the federal government announced sweeping changes to the borrowing criteria for home buyers with two measures. As of December 15, 2024, these changes are now officially in effect:
- Increasing the price cap from $1 million to $1.5 million for mortgages with insurance. This applies to all high-ratio borrowers who must take out mortgage insurance when putting less than 20% down on their home purchase.
- Allowing 30-year amortizations for all first-time home buyers, regardless of their down payment or insured mortgage status.
- Buyers purchasing a new-build home can also access 30-year amortizations. This is regardless if they are a first-time home buyer, or high-ratio borrower.
Canadian Housing Market for 2025
After several years of significant fluctuations driven by pandemic-era disruptions, dramatic swings in interest rates over a short period of time and economic uncertainty, the Canadian residential real estate market expects to see price appreciation fall in line with long-term trends in 2025. According to Royal LePage’s Market Survey Forecast, the aggregate price of a home in Canada is set to increase 6% year over year to $856,692 in the fourth quarter of 2025. The median price of a single-family detached property is to increase 7% to $900,833. Condominiums are expected to increase by 3.5% to $605,993, respectively.
Housing Market in the Greater Toronto Area
The Greater Toronto Area expects to see moderate gains of 5%. In the GTA, supply has been building in the Toronto real estate market as sellers respond to early interest rate cuts by listing their homes. However, with home prices remaining high, many buyers continue to wait for more favourable borrowing conditions. It encourages buyers back to the market following four consecutive rate cuts, and the optimism of more to come. The aggregate price of a home in the fourth quarter of 2025 is forecast to increase 5% YoY to $1,225,770. During the same period, the median price of a single-family detached property is expected to rise 7% to $1,523,466. The median price of a condominium is forecast to decline modestly by 1% to $714,285.
The condominium segment is on a different trajectory. “Toronto’s condo market is the softest it’s been in recent history, specifically in the downtown core. With the [expectation that interest rates will ease] further, thousands of new units slated for completion next year, and new lending policies that will ease the burden of monthly carrying costs, this is a rare window of opportunity for first-time buyers,” says Shawn Zigelstein, broker and leader of Team Zold, Royal LePage Your Community Realty. “The wave of new condo units set to hit the market will offer a period of better affordability, but it will be short lived.”
Final Thoughts on the Canadian housing market
While lower interest rates and lending reforms make the idea of homeownership a possibility again, it’s essential to be aware of the potential challenges. This includes an increase in market competition and future rate changes before diving in. By keeping in-the-know and planning carefully, you can make the most of the current interest rate environment and take a confident step towards homeownership. If you plan on entering the current Canadian housing market, be sure to speak with one of our isure representatives. We’ll be sure you have the right home insurance for your needs! Our brokers can even suggest ways to save on your home insurance by bundling or advising what type of coverages you may not need. Call us today!
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